Local Income Taxes and MUST
Following Senate Enrolled Act 1’s (SEA 1) overhaul of local property and income taxes in 2025, the General Assembly continued discussing changes to local income tax (LIT) structures during the 2026 Legislative Session. Notable adjustments to the LIT structure were made in House Enrolled Act 1210, with legislators delaying the effective date of the LIT changes to 2029. Among other provisions, HEA 1210 allows all cities and towns to opt into the countywide municipal services rate and tweaks the formula for distributing the countywide service rate. Improving and clarifying this new LIT structure continues to be a top Aim legislative agenda item to ensure LIT distribution is fair and significant enough to overcome some of the property tax cuts in SEA 1.
HEA 1210 also creates Municipal Unit Strategic Taskforces (MUST) in each county as a framework for towns, cities and counties to work together and plan for the new LIT changes. MUST is intended as an opportunity for county and municipal officials to discuss their LIT distribution needs and for each county to report its findings back to the General Assembly. Though agreements reached at the MUST meetings are nonbinding, Aim encourages all units to participate in the new process as the meetings will aid further discussions in 2027 on the optimal method of splitting up LIT rates.
To help municipalities prepare for MUST meetings, Aim has put together a MUST Resource Guide. The resource guide includes an overview of changes to the LIT system made in HEA 1210, a checklist for municipal officials leading up to MUST meetings, data from Aim’s legislative team on a sampling of LIT scenarios, and a template municipalities can use to report outcomes from MUST meetings to Aim.
Additionally, a summary of HEA 1210 can be found on page 45 of the 2026 Aim Statehouse Report.
Senate Enrolled Act 1
Property tax reform was Governor Braun’s top priority during the 2025 Legislative Session and it manifested itself in Senate Enrolled Act 1 (SEA 1). The Governor’s introduced version of this bill would have been the most significant property tax reduction since the property tax caps of 2008 and would have been even more significant over time. Through session-long negotiations and advocacy from local government leaders, the final version of SEA 1 was still a significant property tax reduction. The vast majority of the property tax relief will be phased in over time and will be primarily for homeowners.
The legislation has broad fiscal and structural implications for municipalities, leading Aim’s legislative team to undertake a proactive planning effort to assess the impacts, identify solutions, and prepare for future legislative sessions.